The GBP/JPY currency pair has shown a notable upward trajectory recently, building on a recovery move from the 187.00 mark earlier this week. This positive momentum continued for the fourth consecutive day on Thursday, as the pair is trading above the 193.00 mark during the early European session. The gains have been largely fueled by the latest economic data from the United Kingdom, which exceeded expectations and provided a boost to the British Pound.
According to the Office for National Statistics, the UK economy expanded by 1.4% year-on-year in the fourth quarter of 2024, outperforming the anticipated 1.1% growth and surpassing the 0.9% increase recorded in the third quarter. Additionally, Industrial Production and Manufacturing Production saw increases of 0.5% and 0.7%, respectively, in December, both figures exceeding the forecasts. These robust economic indicators have contributed to the GBP/JPY's positive performance.
Furthermore, the UK's Gross Domestic Product (GDP) unexpectedly grew by 0.1% quarter-on-quarter in the last quarter of 2024, following a flat growth rate in the previous quarter. This quarterly assessment measures economic activity by comparing it to the prior quarter, offering a snapshot of progress or contraction over a three-month period. The GDP is widely regarded as a primary measure of economic activity in the UK.
Despite these optimistic figures, the Bank of England's (BoE) recent economic forecast has presented some challenges to sustained appreciation for the GBP/JPY cross. The BoE has halved its 2025 economic growth forecast from 1.5% to 0.75%, signaling a cautious outlook for future growth prospects. This dovish stance may act as a barrier to further significant gains for the currency pair.
The divergent monetary policies of the Bank of Japan (BoJ) and the BoE also play a critical role in determining the trajectory of the GBP/JPY cross. While the UK economic data has been promising, the contrasting policy outlooks between these central banks could limit any substantial upward movement for the pair.
In addition to domestic factors, external influences such as global geopolitical tensions are impacting currency movements. The GBP/JPY has drawn support from ongoing US Dollar selling amid hopes for a resolution to the Russia-Ukraine conflict. This development has added another layer of complexity to forecasting the currency pair's future direction.
As the GBP/JPY continues to navigate these dynamics, investors remain watchful of any signals that could indicate further shifts in economic policy or geopolitical developments. The near-term bottom formed around the 187.00 mark provides a reference point for analysts monitoring potential reversals or sustained trends.